The Bureau of Industry and Security of the United States Department of Commerce (BIS) has adopted a regulation establishing procedures for reporting violations of the antiboycott regulations and guidelines for resolving such violations.

The new regulation does not change the substantive requirements set out elsewhere in the antiboycott regulations. However, the penalty guidelines identify a number of factors that BIS takes into account in determining the nature of any penalty to be imposed for a violation. These factors should be taken into account in a corporate antiboycott compliance program. Doing so will assist in avoiding violations and help to minimize penalties in the event one occurs. On the other hand, failing to do so could result in substantially enhanced penalties for violations.

This memorandum summarizes the new regulation and provides suggestions for companies to take account of the guidelines in their compliance programs. The new regulation is available at: http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-13717.pdf

A. Voluntary Disclosure Provisions and Procedures

The regulation formalizes the manner in which voluntary disclosures of violations should be made and the consequences for making such disclosures.

The newly-adopted procedures for making an antiboycott disclosure now resemble those used for export control violation disclosures. The disclosure must be submitted in writing and received by BIS before that agency has learned substantially similar information from another source. It should briefly describe “the general nature and extent of the violations” and be authorized by corporate senior management.

Following the initial disclosure, the disclosing party must submit a detailed “narrative account” of the violation(s), explaining their nature, when, how and why they occurred, the identities of all persons involved, and presentation of any mitigating factors. Parties making disclosures are advised to review all transactions for the preceding five years to identify other violations of the antiboycott regulations. Although such a review is not mandatory, BIS notes that any unreported violations discovered in the course of an agency investigation will not receive the benefit of prior disclosure treatment.

The regulation clarifies two aspects of BIS practice. First, telephoned or e-mailed inquiries for BIS advice on the antiboycott regulations will not be considered as providing the agency with “substantially similar information from another source” that would negate a subsequent written disclosure. Also, revealing a violation in the course of seeking such advice will not constitute a voluntary disclosure. Thus, a subsequent written submission would be required to qualify as a disclosure, and the prior revelation of the violation in the course of seeking BIS advice would not preclude that submission from receiving voluntary disclosure treatment.

Second, the antiboycott regulations already require a person receiving a request to participate in a boycott to report that fact to BIS, and describe any action taken in response to the request. A person who participated in a boycott and thereby violated the regulations would be required to report such violation in its report to BIS¹. So that the required report does not constitute “substantially similar information from another source” of the violation, BIS permits the simultaneous submission of a disclosure and report. If the report is submitted first, the benefit of a subsequent voluntary disclosure may be lost.

B. Factors in Determining a Penalty and the Benefits of Voluntary Disclosure

The new regulation identifies seven overarching “general factors” taken into account in determining whether a penalty will be imposed in a given case and the extent of any penalty. These general factors are: (1) the violation’s degree of seriousness, (2) the category of violation, (3) whether multiple violations arise from related transactions, (4) whether multiple violations arise from unrelated transactions, (5) the timing of a settlement, (6) whether there are related civil or criminal violations, and (7) the violating party’s familiarity with the antiboycott regulations.

In addition to these general factors, the regulation identifies a number of mitigating factors that weigh in favor of reduced penalties. Chief among them is voluntary disclosure of a violation by the violating party. This factor is given “great weight” in resolving the matter, and will be taken into consideration with the following additional factors: (1) effective compliance program (also given “great weight”), (2) limited business with or in boycotted or boycotting countries, (3) history of compliance with the antiboycott provisions, (4) exceptional cooperation with the investigation, (5) degree of clarity of the request to furnish prohibited information or take prohibited action, (6) whether the violation arises out of a party's “passive” refusal to do business, and (7) whether the violation was an isolated occurrence.

The regulation also identifies a number of aggravating factors that would weigh in favor of a higher penalty. These are: (1) concealment or obstruction, (2) serious disregard for compliance responsibilities, (3) a history of lack of compliance with the antiboycott regulations, (4) familiarity with the type of transaction at issue in the violation, (5) prior history of business with or in boycotted countries or boycotting countries, (6) long duration or high frequency of violations, (7) clarity of request to furnish prohibited information or take prohibited action, (8) violation relating to information concerning a specific individual or entity, and (9) violations relating to “active” conduct concerning an agreement to refuse to do business. The first and second of these factors are given great weight in determining a penalty.

C. The New Regulation Highlights the Importance of an Effective Antiboycott Compliance Program

An effective antiboycott compliance program is crucial to avoiding violations in the first place. The general, mitigating, and aggravating factors identified in the regulation also demonstrate the importance of such a program in the resolution of violations. Thus, “great weight” is given as a mitigating factor to a party’s maintenance of an effective compliance program. An effective program also is more likely to allow a party to identify that a violation occurred and voluntarily disclose it to BIS, provide a history of compliance, and avoid multiple violations. By the same token, in the absence of a program is less likely to voluntarily disclose, and more likely to be found to have disregarded its compliance responsibilities, commit multiple violations, and have a history of noncompliance.

D. Companies Should Take the New Regulation into Account in Their Antiboycott Compliance Programs

United States companies should take the new penalty guidelines into account in their antiboycott compliance programs. The mitigating and aggravating factors provide guidance on actions to take and to avoid, both in the overall administration of a compliance program as well as in the event of a possible violation. U.S. companies and their affiliates conducting business in boycotting and boycotted countries, or that have familiarity with the type of transactions in which boycott requests frequently arise, are particularly at risk of facing several aggravating factors apply in the event of a violation.

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¹Of course, a person’s failure to report receipt of a request to participate in a boycott, regardless of whether that request resulted in a violation, is itself a violation of the regulations.

 

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